Global Trade Is in Sharp Decline. Open Supply Lines Will Be Vital to Fighting the Pandemic
The Covid-19 pandemic has, in the space of weeks, sent a steady if unspectacular global economy into a tailspin, delivering new misery and anxiety to millions of people already fearful for the health and safety of their loved ones.
Complex supply chains have been disrupted by widespread factory closures and problems moving components through ports and across borders. Emergency social distancing measures have sharply reduced demand, as people stay home and cancel spending, while nonessential businesses close their doors.
In the United States, we are already seeing job losses more severe than those at the peak of the global financial crisis of 2008-09. Incomes are drying up for vulnerable workers in developing countries with weak social safety nets.
Wall Street projections for the ongoing fall in economic output range from dismal to alarming. A few days from now, the World Trade Organization will release its trade forecast for the year. It is probable that even in the best-case scenario, trade will decline more sharply than it did in 2009, when trade volumes contracted by 12%.
Governments have already unveiled fiscal and monetary stimulus to counter the economic effects of the pandemic—and to prevent the sudden blow to businesses and households from becoming a new banking crisis. G20 governments have extended trillions of dollars worth of support to shore up consumers, hospitals, workers, and businesses of all sizes. Central banks across the globe have slashed interest rates and made vast amounts of liquidity available to banks so they can continue lending.
A rare segment of the economy in which demand is rising is medical goods and services. Governments and companies are working to ramp up production for everything from masks and other personal protective equipment to ventilators, test kits, medicines, and—soon, we hope, treatments and vaccines.
On the trade-policy front, WTO members including the United States, China, Colombia, Canada, and Brazil have introduced dozens of measures to facilitate trade in Covid-related medical products, cutting import duties, curbing customs-clearance burdens and paring back red tape in licensing and approval. Such actions help make these goods more affordable for domestic consumers.
On the other hand, other measures—including by some of the same countries—will slow trade, notably export restrictions that governments have introduced on drugs, protective gear, and ventilators in an attempt to bolster domestic availability. WTO rules allow for such restrictions in the event of shortages or health threats. But restricting exports from potential suppliers can disrupt supply chains and cause serious problems in the poorer and more vulnerable countries that typically rely heavily on imports for medical equipment. That’s why it was important when leaders from the G20 major economies agreed last week that pandemic-related trade measures should be “targeted, proportionate, transparent, and temporary.”
The fact is that trade will have to be part of any rapid, cost-effective supply response to the Covid-19 epidemic. Research by WTO economists indicates that the existing trade in medical products crucial for treating COVID-19 is substantial: In 2019, countries traded $597 billion worth of products like face masks and gloves, hand soap and sanitizer, protective gear, oxygen masks, ventilators, and pulse oximeters.
As the world tries to ramp up the production of medical supplies, building on existing cross-border production and distribution networks makes sense. We want ventilator manufacturers to be focusing on making as many as they can, not figuring out how to source components domestically, or wondering whether imported parts will get stuck at the border. We want to get medical personnel as much protective gear as they need as soon as possible—where it comes from is beside the point.
Governments have some scope to act at home to lower their pandemic-fighting bills. Our data shows that the average applied import duty on all Covid-19 critical medical goods is 4.8%—11.5% for personal protection equipment and 17% for hand soap.
But they can’t do enough acting alone. It is in all countries’ interest to cooperate on keeping trade in medical products broadly open. No country is self-sufficient, no matter how powerful or advanced it may be. Trade allows for the efficient production and supply of medical supplies and equipment as the disease progresses along different timelines in different countries. Trade is also a critical channel for access to food and energy. The ongoing blow to public finances and household budgets will be bad enough without making necessary supplies scarcer and more expensive.
The WTO is doing its part to help governments. Transparency about trade policies will help governments and businesses plan sourcing and production decisions. This is why I have been urging WTO members to promptly share information about Covid-related trade policies.
The task ahead of us is daunting, but with the right policies, strong leadership, and a collective approach, we can limit the damage and begin together the process of recovery.